The Day Ahead: Beware of an Ambush

 | Apr 30, 2013 | 8:00 AM EDT  | Comments
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"When the enemy is near but still, he is resting on a natural stronghold. When he is far away but tries to provoke hostilities, he wants you to move forward."

"When the trees move, the enemy is coming."

"Those who come seeking peace without a treaty are plotting."

-- Sun Tzu, The Art of War

Full disclosure: I have a man crush on Sun Tzu. Since a boss instructed me to read his teachings several years ago, I have thought long and hard on how to apply them to personal business dealings and yes, investing. Master Sun's writings have \taught me supremely well, serving as protection from countless shady cats and as a guide to all-out, yet cerebral, career warfare.

With that in mind, I think that -- despite the nice, euphoric start to the trading week -- a greater sense of caution will have to be baked into your attack plan by Tuesday's closing bell. Using the above teachings as a reference, it almost seems as if the bulls are luring in the fence-sitters by incrementally bidding up stocks.

You see, if the smart money had taken the S&P 500 to 1600 Monday, it would have been too robust a move. Red flags would have gone up in the fence-sitters' minds just before the release of a batch of global macroeconomic data that stands to determine the market's direction into mid-May. So, instead, the bulls expressed only measured enthusiasm for stocks as they whipped out old arguments. That was their way of sucking every last gain from their positions even as they kept an eye the exit signs prior to the data onslaught.

Yet none of this guidance would be worth a hill of beans without the negative setup, or ambush, waiting off in the distance. Here are a few things that the bulls are planning to unleash on those who have failed to prepare.

The Ambush

First, in a less-publicized statistic -- capital-expenditure plans for 2013 -- the number of companies projecting above-consensus capex is now equal to how many are guiding below Street expectations. For several months prior, that ratio had stood at two-to-one in favor of above-target capex guides. CFOs growing more cautious in a 0% interest-rate environment? You've got to be kidding, right?

Nope. Just look at the weak prices and new-order readings in the regional Federal Reserve surveys for April. If business has softened to the extent suggested in that data, along with prices on those products, capex plans logically should be tweaked.

Away from that, so far telecoms and utilities -- yes, telecoms and utilities -- have together put in the largest percentage of top- and bottom-line beats this earnings season among S&P 500 names that have already reported.

Meanwhile, three key reports in April -- Michigan State sentiment, the Empire State manufacturing survey, and Philadelphia Fed manufacturing -- showed declines vs. March. The latter two missed consensus. All of these reports carry negative employment implications for April, as well.

The Chicago purchasing managers index, and the Institute for Supply Management's manufacturing data, are each due for release before Friday's employment report. I suspect they will each underwhelm analysts and push down estimates for nonfarm payrolls.

Finally, why are we rooting for Apple's (AAPL) stock to advance? That severe downdraft has actually fueled the rallies in the S&P 500 and the Dow as investors have pulled out of Apple and put their money elsewhere! If investors get into Apple after that subpar quarter and lackluster earnings call, it could be a tell that many sectors are now overvalued, with Apple finally able to attract back those flows.

Apple (AAPL) -- Daily

Source: Yahoo! Finance

To hearken back to the Sun Tzu quote above: The trees are blowing.

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